Active Private Equity, the backer of Leon and Evans Cycles, has taken a c50% stake in Honest Burgers, the London-based better burger concept.
Active, which has backed Soho House in the past, is investing about £7m in the nine-strong chain. At the same time, Active co-founder Spencer Skinner will join Honest’s board. Santander was also involved in funding the deal.
Honest, which is on track to report EBITDA of £1.8m in its current financial year, was launched four years ago in Brixton, by Tom Barton, Phil Eeles and former Cote operations director Dorian Waite.
The group recently opened its latest site in Venn Street, Clapham and is in legals on sites in Dalton and Shoreditch.
It recently secured a site in Old Street at The Bower development alongside Ceviche, for an opening this summer.
The company hopes to open its first site outside of London this year, with Brighton its main target location.
Last year, the company secured a new funding package from Santander, and while Waite told M&C Report that it didn’t need any extra investment at present, it was time for the group to add extra “industry expertise” to take it to the next level.
Comment by M&C Report editor Mark Wingett
It wasn’t so much a question of if but when Honest Burgers was going to receive private equity backing such has been the growing popularity of the concept with consumers since it launched four year ago and the investment community.
Co-founder Dorian Waite admitted to me in October when speculation was rife that the group was in talks with prospective investors that the company had received approaches from up to 15 investment firms, regarding funding its next stage of development.
He said: “We have had numerous approaches in terms of new investment from private equity and the like, but we are in no rush to make that step as the business is cash rich. However, we know that at some point we will have to make that move up to the next level and firm up that interest.”
Honest has always seemed like the younger, cooler brother in the latest wave of the better burger movement, but it could be argued it was in danger of missing the boat in terms of expansion outside the capital, such is the pace of growth in the category. Better burger contemporary Byron is closing in on the 50-site mark, is building a strong pipeline and is confident enough to be viewing multiple openings in cities outside London.
Competition is also increasing in the category from regional independents such as Manchester’s Almost Famous, and the growing presence of US chains such as Five Guys and Shake Shack. Indeed, I hear that another US operator, Fat Burger, is close to securing its first UK site in north London. There was a feeling that if Honest didn’t secure the investment it deserved this year the momentum it had built would have stalled as it struggled to compete for sites outside London.
What holds the brand in good stead, apart from the new investment, is that against other brands it is more nimble in terms of offer and the size of site it needs to get a good return on investment. The group has a return on investment target of two years, but it is thought that most of its sites hit their target in half that time.
Its pipeline is good and it hopes to reach 14 sites by the end of the year. Like Byron it is also confident of being able trade close to existing sites. It would like to open another site in Soho, with its existing site in Meard Street believed to have reported a 15% uplift in like-for-like sales last year and still experiencing two-hour queues.
Active’s investment is another indication that there is still plenty of interest and potential growth in the better burger segment. Other fledgling concepts such as Patty & Bun, Dip & Flip and Bleecker St Burger are sure to come under the spotlight as other private equity players and trade buyers look to get a foothold in the category. The bun fight still has a plenty of rounds left in it.
